SAP's Co-CEOs: Are Two Heads Better Than One?

Nearly a year into their tenure as co-CEOs of SAP, Bill McDermott and Jim Hagemann Snabe are saying all the right things and getting good marks from industry analysts--proving that a dual-CEO model is not a recipe for disaster. But the duo still faces significant challenges.

For most people in the United States and several million others around the globe, Sunday, Feb. 7, 2010, was a day to sit back on the couch and enjoy another Super Bowl Sunday chock full of overeating and morning-to-night football coverage.

For Bill McDermott and Jim Hagemann Snabe, two rising executives at SAP, it was a day that would change their lives forever: SAP announced on that Sunday that the pair would replace CEO Léo Apotheker as co-CEOs of the enterprise software behemoth.

It was time for the company that claimed to offer "Innovation without Disruption" to disrupt itself.

"We knew on Saturday, Feb. 6, and by Sunday we were in execution mode," recalls McDermott, who was head of SAP sales and is well-known for his sales prowess. "There was already a lot of trust [between Jim and I] going into Feb. 7."

"Early on, it was important for us to come together on our strategy, the key priorities for the business, a management framework and leadership principles," says Snabe (via e-mail), who was promoted out of SAP's product development side.

The weekend was reminiscent of two college buddies cramming for a hastily called final exam. The end result of the duo's furious strategizing would be a house cleaning in the executive ranks, a change in tenor and energy level from its leadership, and a new mantra for the new SAP: "On premise, on demand, on device."

Does the Co-CEO Model Work?

The co-CEO announcement was greeted with a mixture of curiosity, relief (inside SAP) and skepticism. The Economist, for instance, noted in "The Trouble with Tandems":

"Joint stewardships are all too often a recipe for chaos. Rather than allowing companies to get the best from both bosses, they trigger damaging internal power struggles as each jockeys for the upper hand. Having two people in charge can also make it tougher for boards to hold either to account. At the very least, firms end up footing the bill for two chief-executive-sized pay packets."

Several follow-up articles took issue with The Economist's contentions. One, by Josh Greenbaum, an enterprise software analyst, noted that "companies like SAP are governed by a management board that tends to reward cooperative, consensus management more than most hierarchical US companies would be able to manage."

Additionally, Greenbaum wrote, SAP's German corporate structure has, in fact, had success with the co-CEO model in the past. (It was interesting, however, that neither of the new co-CEOs was German; McDermott is from the United States, and Snabe hales from Denmark.)

But the co-CEO model is not unheard of in high-tech: Since 1993, for example, Research In Motion co-CEOs Jim Balsillie and Mike Lazaridis have spilt their duties and run a highly successful company. More recently, Motorola co-CEOs Sanjay Jha and Gregory Brown have turned around the fortunes of the IT hardware and mobile phone maker.

To McDermott and Snabe, the co-CEO arrangement allows the company's CEO to be in two places at once—all the time. Since McDermott is based at SAP's U.S. headquarters in Newtown Square, Pa., and Snabe is based in Copenhagen, it allows for an enviable executive flexibility. For instance, this year's SAP Sapphire show ran concurrently in Orlando and Frankfurt, and each locale had an SAP CEO presiding over the annual show.

"I never have to worry about what's being discussed [by Snabe], because the core message is based on trust," says McDermott. "Jim knows Bill, and Bill knows Jim. That's the magic of what we've brought to the equation."

Nine Months into the 'Jim and Bill Show'

While the co-CEOs certainly agree on their "On premise, on demand, on device" rhetoric, how do they both stay "on message" in a similar manner?

First, McDermott and Snabe say they place unequivocal trust in the other. "We had worked together for several years before taking on the role as co-CEOs," Snabe says, "so we had a solid foundation of trust to build from." (That has certainly come in handy as Oracle v. SAP has raged on.)

Second, McDermott says that they jointly created a plan for SAP and will stick to it. "CEOs tend to fluctuate with strategy quarter to quarter or month to month. We're not going to do that," McDermott says. "There's no confusion to anyone in the company as to what the game plan is." (That was a pervasive criticism of the Apotheker administration.)

Third, Snabe notes that the two speak every day. "We collaborate and stay in touch regardless of where we are in the world," he says. "Telepresence allows Bill and I to have face-to-face conversations without physically being in the same location. We connect by phone and e-mail regularly, and also enjoy getting together with our families outside of the office."

The two have also benefited from what some people have termed SAP's "third CEO": Vishal Sikka, SAP's first-ever CTO and executive board member who's been a guiding force in rolling out new initiatives such as in-memory databases, an enterprise mobility push resulting from SAP's Sybase acquisition, and its latest technology partnerships, such as the HP-IBM collaboration on SAP's High-Performance Analytic Appliance (HANA) software.

Ray Wang, CEO of Constellation Research and SAP watcher, says that McDermott and Snabe have done a good job "cleaning house" and setting the overall tone of the new SAP.

"They've made tremendous effort to reach out to their respective stakeholders—customers, employees, partners, suppliers and influencers," Wang says. "They are focused on listening and have acknowledged their challenges. They also understand that future revenues will not come from core apps and have made the right set of acquisitions."

Snabe says that their two-headed decision-making process is more of a machine rather than a monster.

"Most people assume that being two means a decision takes longer and is more difficult. I have been surprised to see that it is easier," he says. "As a CEO you are often alone when it comes to the big decisions. We have been able to take the big decisions with more focus and speed because we are two."

The Challenges That Remain

To date, there's been more praise for the duo than criticism. SAP (and McDermott and Snabe) may have benefited from a recovering global economy, where businesses had more capital to spend on enterprise software. (After all, Apotheker didn't cause the 2008 global economic recession, but he may have unfairly taken some of the blame for it while CEO.)

SAP revealed its third-quarter 2010 earnings in October, and in nearly every key category those financials were up significantly year over year. McDermott even called out archrival Oracle during the earnings call, belittling the No. 2 business applications vendor for "locking its customers into a stack" and "alienating" its partners.

That example hints at the differences between SAP's co-CEOs: McDermott is highly quotable, smoother than silk and an aggressive self-made man; Snabe, on the other hand, is less quotable and more reserved (though recent performances have shown Snabe's more outgoing side).

Could the personality differences lead to a power struggle, as The Economist article points out?

"Our two is better than one because we see in each other the magic of what we don't have individually," McDermott says.

"We have complementary skillsets and are very aligned around our vision for the opportunity ahead. We're also having fun," says Snabe. "By nature, the co-CEO model allows us to truly take advantage of the adage that 'two heads are better than one.'"

Nevertheless, their union will be tested.

Constellation Research's Wang says the co-CEOs need to "spread this [new] culture to the rest of the organization and make sure they talk to the people in the field to see if what they are saying has been accomplished."

Product-wise, Wang says SAP's leaders "still need to fix Business ByDesign delivery, rebuild their analytics acquisitions on a common platform and deliver the next generation of software after Business Suite 7."

McDermott and Snabe inherited a substantial amount of product and cultural legacy that only increases the difficulty of shepherding SAP from the old world to the new.

So far, the co-CEOs appear to lack neither confidence in their abilities nor commitment to a plan.